High Court of Ireland Decisions

1. A contract of insurance requires the highest standard of accuracy, good faith, candour and disclosure by the insured when making a proposal for insurance to an insurance company. It has become usual for an insurance company to whom a proposal for insurance is made to ask the proposed insured to answer a number of questions. Any misstatement in the answers given, when they relate to a material matter affecting the insurance, entitles the insurance company to avoid the policy and to repudiate liability if the event insured against happens. But the correct answering of any questions asked is not the entire obligation of the person seeking insurance: he is bound, in addition, to disclose to the insurance company every matter which is material to the risk against which he is seeking indemnity.

2. What is to be regarded as material to the risk against which the insurance is sought? It is not what the person seeking insurance regards as material, nor is it what the insurance company regards as material. It is a matter or circumstance which would reasonably influence the judgment of a prudent insurer in deciding whether he would take the risk, and, if so, in determining the premium which he would demand. The standard by which materiality is to be determined is objective and not subjective. In the last resort the matter has to be determined by the court: the parties to the litigation may call experts in insurance matters as witnesses to give evidence of what they would have regarded as material, but the question of materiality is not to be determined by such witnesses.

3. The test of materiality which is generally accepted in all forms of insurance against risks when property of any kind is involved is stated in s. 18, sub-s. 2, of the Marine Insurance Act, 1906:-

4. Although that test is stated in an Act which deals with marine insurance, it has been accepted as a correct guide to the law relating to insurance against damage to property or goods of all types.

5. The rule to determine the materiality of a fact which has not been disclosed to an insurer was expressed by MacKinnon L.J. with his customary pungency in Zurich General Accident and Liability Insurance v. Morrison [1942] 2 K.B. 53 at p.60 of the report:-

6. The statement of Samuels J. in Mayne Nickless Ltd. v. Pegler [1974] 1 N.S.W.L.R. 228 on the law relating to the materiality of facts not disclosed to insurers was approved and followed by the Judicial Committee of the Privy Council in Marene v. Greater Pacific Insurance [1976] 2 Lloyds’s Rep. 631 Samuels J.

7. In January, 1976, the plaintiff company bought licensed premises at Ranelagh, Dublin. The directors and shareholders of the plaintiff company were Mr. and Mrs. Wootton. The directors decided to run the premises as a public-house and also to have a cabaret entertainment. This made it necessary to build a larger room at the back. There were furnishings in the existing room at the back and, as the extension could not be built without removing them, the directors decided to store them at No. 82 Lower Leeson Street, Dublin. These premises were owned by Consolidated Investment Holdings Ltd. whose shares had been purchased by Mr. Wootton and his business partner, Mr. Mockler, but had been registered in the maiden names of their wives. Mr. Wootton and Mr. Mockler intended to use the Leeson Street premises as a hotel and discotheque and, as Mr. Wootton had been associated with a number of night clubs which had been prosecuted for breaches of the licensing laws, the directors expected considerable local opposition when their application for permission for a change of user was made, if it became known that Mr. Wootton or his wife were associated with Consolidated Investment.

8. The insurance brokers who acted for Mr. Wootton were the second defendants. Mr. Wootton had almost all his dealings with the defendant brokers through Mr. John Harte, an employee of theirs. The defendant brokers placed the insurance of the Leeson Street premises with the Sun Alliance and London Insurance Group and, in the policy, those premises were described and it was stated that the property was “at present unoccupied.” When the directors of the plaintiff company decided to store their furnishings in the Leeson Street premises, Mr. Harte advised them that further insurance cover on the furnishings was necessary. An endorsement on the policy in connection with the furnishings (valuing them at £15,000) was made. As the Leeson Street premises were unoccupied, they were broken into by squatters almost nightly between November, 1975, and the happening of a fire on the 19th April, 1976. The squatters lit fires and cooked there, but they left each morning before Mr. Wootton arrived.

9. The Leeson Street premises and furnishings of the plaintiff company, which Consolidated Investment held as bailees, were damaged badly in the fire. A claim for malicious damage was lodged with the local authority and it was compromised by an agreed award of £55,500. The plaintiff company was paid £8,000 by Consolidated Investments who forwarded a Sun Alliance cheque for that sum drawn in favour of the plaintiff company in respect of the furnishings. The claim by Consolidated Investment against Sun Alliance was handled by Corcoran Insurances Ltd. Mr. Mockler and Mr. Wootton were so dissatisfied with the type of cover which the defendant brokers had negotiated in connection with the Leeson Street premises that they had changed their brokers and had given their business to Corcoran Insurances in December, 1975.

10. When the plaintiffs bought the Ranelagh premises, they were insured with the General Accident Insurance Co. Ltd. and this policy was renewed subsequently. The principal in Corcoran Insurances advised Mr. Wootton that a different and wider insurance cover was advisable in respect of the Ranelagh premises but, when General Accident was asked to quote for this, that company increased by 50% the premium which it would require. Mr. Wootton was most reluctant to pay such a large increase and he decided to get his brokers to ask for tenders for the insurance. The first defendants, who are an Italian insurance company, are represented and carry on business in the Republic of Ireland through their agents, International Underwriters Ltd., and they sent in the lowest tender.

11. Mr. Harte had remained on friendly terms with Mr. Wootton and frequently called to his premises. The plaintiffs wanted cover against fire risk, employer’s liability, liability to the public and loss of profits. Separate proposal forms for each type of insurance were sent by the defendant insurers and Mr. Harte got these. On the 22nd February, 1978, Mr. Harte called to the plaintiffs’ premises in Ranelagh with these proposal forms; they were issued by International Underwriters. One form related to material damage. Mr. Harte asked the questions necessary to enable the answers to the questions to be filled in, and gave any other information required. It was not disputed by anyone during the trial that the handwriting in which the answers appeared was that of Mr. Harte. There was a discussion about the fire at the Leeson Street premises and Mr. Harte said that it was totally unnecessary to disclose this on the proposal forms because – as Mr. Wootton said – “we were dealing with a separate company and only had to show what was relevant to the Chariot Inn” (see transcript, 1st day – Q. 167). As there is a question in this case as to who were the brokers who negotiated the policy with the defendant insurers, it is important to note that Mr. Harte wrote “Coyle Hamilton” on the forms.

12. In the form dealing with material damage this appeared:- “Give claims experience for loss over the last five years (i.e. date, nature of loss, amount paid or outstanding. Brief details of how loss occurred). If none in any class say so.” The answer, written by Mr. Harte, was “None”. The defendant insurers subsequently issued policies to the plaintiffs in respect of the various types of liability for which the plaintiffs sought insurance cover, and in respect of indemnity against material loss.

13. On the 14th May, 1978, a serious fire occurred at the plaintiffs’ Ranelagh premises and it caused extensive damage there. In June, 1978, the defendant insurers repudiated liability because of the non-disclosure of the fire at the Leeson Street premises. From the time of the Ranelagh fire, the defendant insurers suspected that Mr. Wootton had set fire to the Ranelagh premises and, during the hearing of the case, they stated that they would not have raised the issue of non-disclosure if they had not suspected that this was a case of arson.

14. When the defendant insurers repudiated liability, the plaintiffs brought this action against them and claimed a declaration that the policy issued by the defendant insurers, and providing for indemnity against material losses, was valid. As against the defendant brokers, the plaintiffs claimed damages for breach of contract and for negligence. The defendant insurers pleaded, amongst other defences, that Mr. Wootton had set fire to the Ranelagh premises; they withdrew this plea only at the end of the plaintiffs’ case.

15. The trial judge accepted the evidence of Mr. Wootton in relation to the circumstances in which the proposal form was completed, and he held that Mr. Harte knew about the fire at the Leeson Street premises. Mr. Harte died suddenly on the 9th April, 1978, shortly before the fire occurred at the Ranelagh premises. The trial judge decided that the non-disclosure of the fire at Leeson Street, of the fact that the plaintiffs’ furnishings were stored at those premises, and of the plaintiffs’ receipt of £8,000 in respect of the damage to those furnishings, did not constitute a material matter which the plaintiffs were bound to disclose to the defendant insurers. Accordingly, he declared that the policy issued by the defendant insurers was valid, and he dismissed the plaintiffs’ claim against the brokers.

16. There has been a sustained attack on Mr. Wootton’s credibility and we have been invited to reverse the trial judge’s finding that the proposals for insurance were completed in the way Mr. Wootton described. Miss Keogh, Mr. Wootton’s secretary, was in the room when Mr. Wootton was being interviewed by Mr. Harte in connection with the completion of the proposal forms and her evidence supported Mr. Wootton’s testimony. The trial judge had the advantage of seeing and hearing the witnesses and, in these circumstances, I am not prepared to differ from his findings as to Mr. Wootton’s veracity. The question as to when an appellate court should reverse a finding by the trial judge as to the credibility of a witness was fully discussed by this Court in Northern Bank Finance v. Charlton [1979] I.R. 149

17. Three experts on insurance business gave evidence. Their unanimous view was that the fire at Leeson Street and the damage to the plaintiffs’ goods were matters that were material to the risk which the defendant insurers were asked to insure. Their opinions were not conclusive on this matter. The question whether any of these matters were material is essentially an inference from facts established by evidence.

18. The circumstance that Mr. Wootton was a director of the plaintiff company and of Consolidated Investment would not, of itself, make a fire on property owned by Consolidated Investment a fact which was material to the risk undertaken by the defendant insurers when they insured the plaintiff company against fire on its premises. However, I think that it was material to the insurance effected by the plaintiffs with the defendant insurers that goods belonging to the plaintiffs were damaged by fire in premises owned by Consolidated Investment. The answer to the query about claims made by the plaintiffs for loss over the previous five years was literally correct but, though the plaintiffs had no claim against Sun Alliance (who issued the policy in respect of the Leeson Street premises), the plaintiffs were paid by Sun Alliance the sum negotiated in respect of their stored furnishings. The circumstances in which the plaintiffs’ goods were stored in the Leeson Street premises and the fact that the plaintiffs ultimately got payment in respect of them were, in my view, matters which would reasonably have affected the judgment of a prudent insurer in deciding whether to take the risk or in fixing the premium, particularly as Mr. Wootton was a director of, and managed and controlled, the plaintiff company and Consolidated Investment.

19. It was contended strenuously by counsel for the defendant brokers that the onus of establishing that the matter not disclosed was material to the risk undertaken lay on the defendant insurers and that, in order to discharge this onus, the defendant insurers had to establish that the matter not disclosed did affect (and not merely might have affected) their judgment. I accept the first part of this proposition but not the second part. It is necessary to establish that the fact which was not disclosed would have reasonably affected the judgment of a prudent insurer if it had been disclosed. The second part of counsel’s proposition contains the error which MacKinnon L.J. condemned.

20. The plaintiffs and the defendant brokers placed strong reliance upon the renewal by General Accident of the insurance on the Ranelagh premises after that company had been informed of the fire at Leeson Street. The evidence on this matter is not very clear. Mr. Corcoran said that, when the policy relating to the Ranelagh premises was being renewed with the General Accident, he “surmised” that he told that company of the fire at Leeson Street. Mr. Shaw, an official of General Accident, recollected that Mr. Corcoran had informed him of the fire at Leeson Street and said that he had passed on the information to a senior official. The senior official did not give evidence and Mr. Shaw’s evidence did not establish when this information was given to him or the details which he was given. However, even if one assumes that Mr. Corcoran gave Mr. Shaw all the information about the Leeson Street fire which we now have, insurance companies may apply different considerations to taking new risks and renewing policies.

21. In my opinion, the plaintiffs’ action against the defendant insurers should have been dismissed. I think that the appeal of the defendant insurers should be allowed.

22. The defendant brokers were acting as insurance brokers for the plaintiffs at the time when the proposal for material damage was completed, and Mr. Harte was their employee. An insurance broker owes a contractual duty to his client to possess the skill and knowledge which he holds himself out to the public as having, and to exercise this in doing the clients’ business. He is also liable in tort if he fails to exercise that skill and knowledge. Mr. Harte (whom the trial judge accepted to have been an experienced, competent, and completely honest broker) should have known that the fire at Leeson Street and the subsequent payment of £8,000 to the plaintiffs were material to the risk which the defendant insurers were being requested to undertake. Therefore, the brokers are liable to the plaintiffs in both contract and tort.

23. The question of contributory negligence on the part of the plaintiffs was raised by counsel for the brokers but, understandably, it was not pressed. Having given the necessary facts in answer to questions put by the brokers’ representative, Mr. Harte (who read out the questions from the proposal form to Mr. Wootton, who wrote in the answers, and who was told about the fire in Leeson Street), the plaintiffs were entitled to rely on his skill and judgment; and so it could not be held that they were guilty of contributory negligence.

24. In my opinion, the plaintiffs are entitled to judgment against the defendant brokers for such damages as the plaintiffs have sustained by the brokers’ breach of contract or negligence. I think that the case should be remitted to the High Court for the assessment (by a judge alone) of the damages payable to the plaintiffs by the defendant brokers.